Monday, January 10, 2011

As the Public Policy Forum’s 2010-2011 Norman N. Gill Civic Engagement Fellow, I am honored to be working on a year-long project that will examine how municipal governments in Wisconsin raise and spend their tax dollars. Over the next five months, I will be sharing some of my research with the blog. Ultimately, my research will lead to a paper that will discuss alternatives to financing municipal governments.

The Forum previously documented the fiscal problems that arise from the City of Milwaukee’s reliance on shared revenue from the state to fund its general purpose budget. Indeed, intergovernmental revenue represents about 45% of Milwaukee’s general purpose budget, which makes it the largest source of revenue.

The early stages of my research indicate that it is rare for a city to depend so much on intergovernmental revenue. Columbus, Oklahoma City, and Boston, for example, all offer different models that cities use to fund their general budgets without as much dependence on external revenue sources.

Columbus funds its general budget primarily through a city income tax. In Ohio, state law requires all municipalities to impose a flat individual income tax, and the maximum rate that a municipality can impose without voter approval is 1%. Columbus, through voter approval, imposes a 2.5% tax on earned income such as wages, salaries, and net business proceeds generated in the city. As a result, more than 70% of the general budget’s funding comes from the municipal income tax. Milwaukee, of course, has no city income tax.

Oklahoma City, meanwhile, funds its general budget mostly with a sales tax. It levies a tax of 3.87% on sales in the city, and about half of that revenue goes directly into the general budget. In fact, Oklahoma City uses property tax revenue only for capital projects (such as roads) and not for operating expenses. Milwaukee has no city sales tax.

Boston, meanwhile, funds more than 60% of its general budget through the property tax. The property tax rate in Boston is $11.48 per $1,000 of housing value, which is considerably less than Milwaukee’s $27.70. Boston benefits from having more expensive property; in 2010, the total assessed value of Boston’s property was $87.3 billion, compared to $28.9 billion in Milwaukee. This enables Boston to raise more money at a lower rate. Regardless, Boston has at least identified a main, locally-controlled tax base (property) to fund its operating expenses. Milwaukee, where property tax revenue is about 21% of the general budget, has not.

To be sure, these three distinct models to fund municipal budgets each have their own costs and benefits, which will be analyzed and discussed in my report. Yet, it is clear that Columbus, Oklahoma City, and Boston are relatively self-sustaining, while Milwaukee is enormously dependent on Madison for its survival.

The Forum is now accepting applications for the 2011-2012 fellowship year. For more information, go to the Norman N. Gill Civic Engagement Fellowship website. Applications are due April 30, 2011.